Residential and Commercial Financing Flashcards

A lender quotes a commercial loan with a 1.25 DSCR requirement. If annual debt service is $120,000, what minimum NOI must the property generate?

Answer: $150,000

Minimum NOI = Debt Service × DSCR = $120,000 × 1.25 = $150,000.

What is the maximum loan-to-value (LTV) ratio typically allowed for a conventional conforming primary residence purchase without PMI?

Answer: 80%

Conventional loans at 80% LTV or below do not require private mortgage insurance (PMI).

In a commercial loan, what is a 'lockout period'?

Answer: A period during which prepayment is completely prohibited

A lockout period is a specified timeframe in which the borrower cannot prepay the loan at all, protecting the lender's yield.

Which federal regulation implements the Truth in Lending Act (TILA) for residential mortgages?

Answer: Regulation Z

Regulation Z implements TILA and requires lenders to disclose key loan terms including APR, finance charges, and total payments.

A borrower takes out a $500,000 interest-only commercial loan at 6% annually. What is the monthly payment during the interest-only period?

Answer: $2,500

Monthly interest-only payment = $500,000 × 6% ÷ 12 = $2,500.

What is 'yield maintenance' in the context of commercial mortgage prepayment?

Answer: A penalty calculated to compensate the lender for lost yield if rates have fallen

Yield maintenance requires the borrower to pay a premium that compensates the lender for reinvestment risk when prepaying in a lower-rate environment.

Under Dodd-Frank, a Qualified Mortgage (QM) generally prohibits which loan feature?

Answer: Balloon payments on loans under 7 years for non-small creditors

Standard QM loans cannot have balloon payments (except for small creditors and certain rural/underserved lenders).